Bank lending and firm internal capital markets following a deglobalization shock

Björn Imbierowicz, Arne Nagengast, Esteban Prieto and Ursula Vogel

Journal of International Economics, 2025, vol. 157, issue C

Abstract: We examine the effects of a deglobalization shock on bank lending, firm internal capital markets, and the real economy. Leveraging a unique dataset, we are able to observe both domestic and cross-border credit exposures of German banks as well as internal capital market dynamics within multinational corporations (MNCs). We analyze the response to the Brexit referendum shock. On average, banks reduced lending to United Kingdom (UK) firms following the shock due to increased uncertainty about future losses. More prudent banks reduced their credit more extensively, and less profitable subsidiaries experienced greater reductions. However, UK subsidiaries of large MNCs, with access to internal capital markets, offset this credit supply shock through internal funding, shielding them from negative real effects. Our findings underscore that while international financial frictions following deglobalization shocks can imply negative real effects, firms integrated into global networks mitigate these impacts through internal capital markets.

Keywords: Bank lending; Deglobalization shock; Policy uncertainty; Real-financial linkages; Internal capital markets (search for similar items in EconPapers)
JEL-codes: F23 F34 F36 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:157:y:2025:i:c:s0022199625000753

DOI: 10.1016/j.jinteco.2025.104119

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